Exam 1 Shortened Flashcards
corporate vs business level strategy
corporate: where we will compete, what industry/market
business level: how we will compete, how will we have competitive advantage
what is strategic vision, what are elements of a good one
statement that captures organizations aspirations and long-term objectives, answering what do we want to doo ultimately, what is our overarching intent?
drives strategy, helps management make decisions
effective vision statements:
1. are expressed as a statement
2. is forward looking and inspiring
3. provides meaning for employees
4. gives benchmark or metric for achievement
how is vision different than mission
vision: what do we want to do ultimately, what is our overarching intent?
mission: what are we doing today, how do we accomplish our goals?
intended vs realized strategy
intended: the rational, top-down plan that businesses come up with in the board room or at executive meetings
rational: what happens when intended strategy meets things that have emerged from the bottom of the business or from the external environment
two business model/business level strategy choices
differentiation: seeking to create higher value by offering unique features
ex. better customer service, high quality of inputs, product features and performance
cost-leadership: seeking to create similar value vs. competitors but charging lower price
differentiation/cost-leadership works best when
differentiation:
- consumer needs are diverse
- consumer preference matters
- there are many ways to differentiate
cost-leadership:
- products are commodities, you have no choice but to sell the exact same products
- price competition is strong
economies of scale
firms that tend to produce and sell more tend to have lower average unit costs
why? because they can spread fixed costs out over a larger amount of units
EoS can act as a barrier to entry, because new companies can’t immediately reach the low unit cost and high volume that existing competitors that are operating at
learning curve
the advantage that stems from accumulating experience, learning, and know-how
unit cost within a company decreases as cumulative experience and production increases
companies get more cost effective the more that they do something
learning rate/progress ratio
0.8 = every time you double your output, your unit cost decreases by 20%
0.6 = every time you double your output, your unit cost decreases by 40%
1.0 = when you double your output, nothing happens to your unit cost
value chain definition
shows how a product moves from raw-material stage to the final customer and the activities that support it
visual way of depicting what activities create value for customers
allows the firm to understand the parts of its operations that create value and those that do not
primary vs support activities in value chain
primary:
- activities that add value directly by transforming inputs into outputs
- mainly about moving raw materials through production phases, to sales and marketing, to customer distribution and service
- ex. supply chain/logistics, manufacturing operations, distribution, marketing and sales, customer service
support:
- activities that add value indirectly, but are necessary to sustain primary advantages
- they’re necessary, but on their own not sufficient to create competitive advantage
- ex. research and development, information systems, accounting and finanance, Hr management
macroenvironment
the external environment: factors in a broader market/society that influence an industry and the firms within it
why does the external environment matter? because previously successful business strategies and models could be rendered obsolete overnight by changes in an external environment. they need to be dynamic and ready to adapt
external analysis–pestel
political
- the influence government bodies can have on firms
- lobbying, public relations, contributions, litigations
- ex. uber convincing lawmakers that ride share services should be legal
external analysis–pestel
economic
- factors, including growth rates, interest rates, levels of employment, price stability (inflation and deflation), and currency exchange rates
- all have an influence on multiple industries, such as by impacting the supply chain and customers ability to buy
external analysis–pestel
sociocultural
- factors such as society’s cultures, norms, and values
- these are often in flux, ex. consumer food preferences
- particularly important for multinational firms because cultures, norms, and values will vary by location. geographic distance isn’t always a good indicator of sociocultural diversity
external analysis–pestel
technological
- factors that capture the application of knowledge to create new processes and products
- innovation in product technology or process technology
external analysis–pestel
ecological
- ecological and environmental issues such as the natural environment, global warming, and sustainable economic growth
- depending on the type of industry, environmental issues can be seen as a threat to current business models or an opportunity to differentiate
external analysis–pestel
legal
outcomes of political processes that manifest themselves in laws, mandates, regulations, and court decisions
- larger global scope adds complexity, large variance around the world
competitive environment
5 forces model
- threat of new entrants/barriers to entry
- bargaining power of buyers (price takers or negotiators)
- bargaining power of suppliers
- threat of substitute products
- intensity of rivalry (price competition)
competitive environment
5 forces model
threat of new entrants/barriers to entry
when barriers to entry are low, threat of new entrants is high. barriers are low when:
- low capital requirements/upfront startup costs
- low economies of scale, existing companies not really benefitting from economies of scale
- few advantages from early entry/learning, means older companies don’t have lower costs
- little product differentiation/brand loyalty, established brands don’t have an advantage and customers don’t mind switching
- limited government regulation/policy (no federal agency oversight of the industry)
- no expected retaliation from competitors
- access to distribution channels
competitive environment
5 forces model
bargaining power of buyers
are they price takers or price negotiators?
buyer power increases when:
- buyers are large and few in number, purchasing a large portion of industry’s total output
- buyers can switch to a competing product without incurring high switching costs
- buyers pose threat to integrate backwards into the sellers industry
- buyers are well informed about price, quality of goods
competitive environment
5 forces model
bargaining power of suppliers
supplier power increases when:
- suppliers are large and few in number
- suppliers pose a threat to integrate forwards into the buyers industry
- suitable substitute supplies are not available
- firms are not large customers of suppliers, and there are many customers (meaning firm isn’t relying on small amount of customers)
- suppliers product creates high switching costs (asset specificity)
competitive environment
5 forces model
threat of substitute products
at the industry level–energy drinks for soda, not coke for pepsi
threat of substitute products increases when:
- buyer faces few switching costs
- the substitute product’s price is lower
- the substitute product’s quality and performance are equal to existing product, it fulfills the same need
competitive environment
5 forces model
intensity of rivalry
rivalry = price competition. if I do something, will my competitor respond
industry rivalry increases when:
- numerous small competitors, intensity of rivalry increases the higher number of competitors there are
- industry growth is slowing or declining
- there’s a lack of differentiation opportunities
- high exit barriers
baseline indicators of rivalry: resource similarities, market commonality, price competition
